Dall’Angelo adds that one result of the higher interest rate policies of central banks has been the sharp fall in equity markets, and this creates a “reverse wealth effect”, which is deflationary.
This is because if people see the value of their assets in their Isa or Sipp decline, then they feel poorer and react by reining in spending, which is deflationary.
Jon Mawby, bond fund manager at Pictet Asset Management, is skeptical that the reverse wealth effect has an impact, as he says the wealth effect mostly benefited the ultra-rich, and those people will hardly notice the reduction in their paper wealth.
But he is sympathetic to the view that inflation cuts inflation, and so a peak may be near.
He says: “My family were in the wholesale fruit and veg business when I was growing up, and my father always said the cure for high prices is high prices. I did an investor roadshow last week, the first one I’ve really done since the pandemic, but everyone is struggling, everyone is cutting back.
"When you see the stresses in households, I don’t see why they are putting rates up. We aren’t going to have inflation at 8 per cent forever. There is demand destruction, but also there are governments and central banks who don’t want wages to rise, something which I find to be quite insulting, but they are determined to stop wage growth.”
Lagarias is more concerned about the outlook for inflation, saying he thinks the peak will be closer to 10 per cent before it declines.
He adds: “We also have the impact of the Chinese lockdowns disrupting supply chains. I think that will prove the final straw in terms of being another supply shock that could cause inflation to persist.
"I also think longer term that it could kick off a period of re-shoring, where companies want their supply chains to be closer to home, and that would be inflationary over the long-term. But I am sceptical about the concept of wage growth coming through. I think people are still in a secular stagnation mindset and won’t ask for a pay rise.”
While Dall’Angelo takes the view that, in the absence of another supply shock, inflation has peaked, Lagarias' view is that the continuing lockdowns in China are having the same impact as another supply shock, and so inflation will persist.
